QE extension increasingly likely

Worryingly, the ECB’s lowered growth and inflation targets were correlated before Black Monday, leaving markets expecting worse news still to come.

Any hopes Mario Draghi had of taking a sneaky day off on his birthday have been quashed with today’s ECB press conference coinciding with it. Let’s hope he has some decent presents waiting for him at home as the eurozone’s latest economic data releases will have left him with little reason to cheer. Three things instantly jump out from this report: firstly, the likelihood of the current QE programme ending in September 2016 is looking even more remote; secondly, with these figures correlated before Black Monday, we should expect both growth and inflation to be downgraded even further; and finally, the comments from both the Bank of England and George Osborne that events in Asia are only going to have a mild effect on the UK’s economic projections look even less credible.

European equity indices started the day off on a positive note, initially boosted by the fact that the Chinese Shanghai composite was shut, and the ‘no China no worries’ mentality was evident around trading floors. The ECB’s soft economic projections also increased the likelihood of an extension to the QE process, giving equities a boost in the afternoon session too. The market has been rife with rumours that US interest in super market chain Morrisons might turn into something more solid, and this has seen the food retailer outperform its peers. Shares in easyJet have been flying high today with an impressive trading update, aided in no small measure by the continuing turmoil in the oil markets. Also benefiting from this, although with less impressive ascendency, has been Wizz Air. The EU has now given its consent to Shell’s acquisition of BG Group, though with the moves we have seen in energy markets the attractiveness of this deal might well come into question.

With the ECB press conference now out of the way trader’s attention has instantly shifted to Friday’s US non-farm payrolls report. As institutional opinion becomes increasingly less confident of a September start date to US interest rate rises, these figures will need to meet, or more likely, beat expectations in order to prevent that timeline moving even further away.